Buying a new house in an estate – contractual complexities

It is common practice in Ireland for a purchaser, buying a new house in an estate, to sign 2 contracts. One to buy the site and another to employ the builder to build the house. The standard agreements have many pitfalls, and there is a need for one sensible agreement to be drawn up.

• Examples of conflicts include the following;
  • Holding the deposit as stakeholder
    • Under condition 5 of the 2009 General Conditions of the Law Society Contract, the vendor’s solicitor holds the contract deposit as stakeholder pending completion of the sale and does not release it to his client save in the event of forfeiture following default and only then after notice to the purchaser.
    • There was no obligation under the Building Agreement to hold any amount as stakeholder. In fact, it is usual under a Building Agreement for either all of the deposit (or such part of the deposit which is insured under a house building scheme such as HomeBond) to be released directly to the builder. This was because the builders typically incorporated booking deposits and contract deposits into their cash flow and financed part of the construction from released deposits.
  • Completion Notices
    • Under condition 40 (b) of the 2009 General Conditions of the Law Society Contract, unless time is of the essence, the Vendor serves a 28 day notice to completion on the Purchaser if the sale has not completed on the agreed closing date. If the Purchaser does not comply with the notice within the timeframe, he is deemed to be in breach and the Vendor may enforce against him and forfeit the deposit which was being held as stakeholder in accordance with condition 41.
    • Under 4 (d) of the Building Agreement, if the Purchaser (therein called the Employer) fails to pay the amounts required under the Building Agreement (i.e. the Contract Price), the Vendor (therein called the Contractor) serves a notice of non-payment and if after 14 days the amounts are not paid, then the Vendor may repudiate the Building Agreement.
  • Insolvency
    • Under the Law Society Contract, an act of insolvency on the part of a Vendor does not terminate the contract and a receiver can enforce a contract which was in place at the time of his appointment.
    • However, under the Building Agreement, an employer could terminate the Building Agreement if the Contractor was adjudged a bankrupt or enter into liquidation or have a receiver appointed.
  • Notices
    • General Condition 49 of the Law Society Contract deals with notices generally and while broadly similar,   it differs in it detail to the notice provisions under the Building Agreement and could result in a notice being served validly under one agreement but not under the other;
      • Under the Building Agreement a fax is deemed to have been delivered at the expiration of one day from when it was sent whereas under the Law Society Contract it is deemed to be served when it was sent.
      • Under the Building Agreement a notice is deemed to have been delivered at the  expiration of three days after it was posted by pre-paid post whereas under the Law Society Contract it is deemed to be served three working days
      • Under the Building Agreement a notice may be delivered by hand to “such other address as such party shall have communicated in writing to the other” whereas under the Law Society Contract if a notice is delivered to a recipient by hand it must be to “such address as shall have been advised by him to the [serving party] as being that required by the intended recipient for the service of notice”.